Michael Stone, Chairman and Co-Founder, Beanstalk
Beanstalk Founder Michael Stone reinvented licensing to help brands forge powerful bonds with customers.
You may not know Michael Stone or even Beanstalk, his industry-changing company, but you know their work.
Stone is the mastermind behind the practice of popular brands putting their stamps on other companies’ product lines—think Febreze-branded kitty litter, Jack Daniels barbecue sauce, or Bailey’s Irish Cream coffee creamers.
He’s nothing short of a legend when it comes to licensing, having changed the way major corporations think about how they can use branding as a communications tool, and build more meaningful and enduring relationships. He even taught the first graduate course in the United States specifically on trademark licensing, and just this year was named to the International Licensing Hall of Fame.
Beanstalk was responsible for over $7 billion in retail sales of licensed product in 2018. It has received 23 LIMA Awards. From its offices in London, New York, Miami, Cincinnati, Mumbai, and New Delhi, it has created some of the most successful licensing programs in history, including programs for Procter & Gamble, Stanley Black & Decker, Harley-Davidson, HGTV, The Coca-Cola Company, AT&T and Kelly Ripa.
But Stone didn’t start out in licensing. He didn’t even begin in related fields like marketing or sales.
“I started out in a completely different direction from where I ended,” Stone says, laughing. “I wanted to be a legal aid lawyer.” The future licensing mogul did earn his law degree from Emory University and got a job working as an attorney, but he didn’t stay in that lane.
“I wanted to be a pioneer in an industry where I thought I could make a difference and make a change in the way that businesses operated in that industry,” Stone says. “I ultimately found my way into licensing.”
And make a difference he did.
Finding White Space
Stone founded Beanstalk in the mid-1990s. “I probably would have been an internet startup if the internet was around back then,” Stone says. But this was long before Facebook or even Google. “So we went in a different direction.”
He first looked around at the licensing structures that were in place and saw a lot of motion picture, television, and character licensing. Children of the 80s will know this phenomenon all too well, thanks to classic examples like Superman Underoos, Flintstones Vitamins, or Pac-Man breakfast cereal.
But there wasn’t much corporate brand licensing. Coca-Cola was engaged in it, and had been since the 1970s, but it was an outlier.
“That’s where we saw white space,” Stone says.
Components for Successful Corporate Brand Licensing
“Licensing is actually, in my opinion, an analog tool in a digital age,” Stone says. “It’s a way to invite a consumer to participate with the brand by buying a product and bringing it into their home. It’s a way to reach consumers in different aisles of the store or web pages. It’s a way of entangling a brand with consumers.”
It works like this: A company with a certain level of notoriety sells the use of its brand name to another company that sells other, relevant products. The trusted brand name drives sales, and consumers become exposed to the brand’s identity across multiple products, thereby developing a stronger affinity.
Armed with the belief that he had something powerful to offer, Stone courted well-known brands like those in the Procter & Gamble group (his biggest client today). He schooled company leaders on the value of leveraging their brand recognition and reputation. He and Beanstalk quickly became the go-to resource for famous brands looking to carefully expand their reach into other market segments.
As he put each new licensing deal into place, Stone noted the repeating elements needed for a brand licensing arrangement to function well:
- The brand must already have fame (the majority of the nation or intended market is aware of the brand).
- The brand must have opportunities to align with other products that make sense.
- The partnership must generate enough volume of business to justify the relationship.
He offers Citibank as an example of a well-known brand that isn’t suited toward expansion via licensing. While it meets the first requirement, the next two aren’t present. “There aren’t enough product categories that the Citibank brand can be extended into that will generate enough volume to make sense for Citibank to engage in licensing,” Stone says.
On the other hand there’s Febreze, a product that eliminates bad odors. The vast majority of consumers in the United States are familiar with the Febreze brand, meeting Stone’s first requirement for success.
Stone and his team considered what other products involve bad odors. Kitty litter and trash bags are created to manage smelly substances. So, Stone’s second requirement was met.
And, in identifying just those two options, the third requirement had also been met. Enough kitty litter and trash bags are sold in the United States to meet his volume requirement. They subsequently licensed the Febreze brand to kitty litter and trash bags.
“Brand licensing is a way to reach consumers,” Stone says, “extend the brand meaning, and further bond consumers to the brand.”
But for those wondering if brand licensing will be the ticket to their brand’s success, Stone offers stern advice. “Licensing is not going to make you famous. You need to be famous first.”
Keeping His Focus
Entrepreneurs these days often have long lists of startups in their bios. Not so with Michael Stone. He’s still at the same company he started 25 years ago, though it’s a much different beast today.
In 2005, Stone sold the majority interest in Beanstalk to Omnicom Group, a multibillion-dollar holding company. Stone retains minority interest in Beanstalk and, for the first few years after the sale, also stayed on as CEO.
“Two or three years ago, I decided I was getting a little tired of being the CEO,” Stone says. He’d been running the company for over two decades. He handed over the CEO reins to a 20-year colleague and turned his focus toward gathering his licensing experience and knowledge into a book.
The Power of Licensing: Harnessing Brand Equity was published by the American Bar Association in October 2018. The book quickly became the bible for anyone working in or trying to understanding brand licensing.
“That was such a journey of discovery for me,” Stone says about his book writing experience.
That thirst for knowledge and expansion of presence in his chosen area is what has kept Stone doing “what my wife thinks is the same thing for 25 years,” he kids.
Rather than starting a new business every few years and selling it, Stone stayed within his existing business and uses it as the vehicle to explore new ideas. He evolves as the marketing and retail environments evolve, always learning, ever on the hunt for new tactics and consumer feedback.
“I ask questions like, ‘How is our industry viewed? What are the negatives? Stereotypes? How have they changed? What is it viewed like now versus the past? How is it viewed by smart clients? How have their expectations changed? How have the tactics changed?’ There’s so much to learn, so many new things to get involved in, in marketing and retail, and we touch all of those fields. There are always things to learn and time for discovery.”
Stone pulls no punches about the volatile, demanding nature of entrepreneurial life. He likens it to riding a roller-coaster and warns that it requires 24/7 commitment. As a friend of Stone’s once told him:
“An entrepreneur engages in the relentless pursuit of opportunity without regard to resources currently controlled.”
“You’re thinking about the business all the time,” Stone says. “All the time. Weekends. At parties. When you’re supposed to be listening to other people talk about their vacations, you’re thinking about the business.”
He acknowledges that many of his colleagues went the route of taking jobs with existing corporations. They made plenty of money doing so. “There’s nothing wrong with being a good corporate citizen and paying your dues,” he says. It simply would have been wrong for him as his dream was to start something new and cause an industry shift.
He was meant to be a founder.
Interview by Nathan Chan, feature article reprinted from Foundr Magazine, by Rebeca Seitz
- Why Stone switched lanes from practicing law to pioneering brand licensing
- The uncharted territory Stone noticed, and how it led to the launch of Beanstalk
- The necessary components for successful corporate brand licensing
- How Beanstalk became the go-to resource for prominent brands
- An explanation of why Febreeze is a better candidate for expansion via licensing than Citibank
- Handing over the reins of a business that was responsible for over $7 billion in sales in 2018
- Why Stone decided to stick with his existing niche instead of starting multiple new businesses
- Stone’s honest warning for aspiring entrepreneurs
Full Transcript of Podcast with Michael Stone
Nathan: My first question to everyone that comes on is how did you get your job?
Michael: Well, that’s a great question actually. And one of my favorite quotes is by the famous philosopher Joseph Campbell. He said, “If you can see your path laid out in front of you, step by step you know it’s not your path. Your own path you make with every step you take. That’s why it’s your path.”
And that’s kind of what happened to me. I started out in a completely different direction from where I ended. And when I speak to young people, and I’ve been around a while, I often tell them don’t think you know where you’re headed. Because you’re going to find that the path has many twists and turns and you can’t see around the bend.
And that’s what happened to me. I started out wanting to be a lawyer, a legal aid lawyer. I am a lawyer. I saw myself in the career as a legal aid lawyer and ended up as a licensing agent. I didn’t get the job. I created a job out of whole cloth. I definitely was not qualified for the job. I wasn’t to run a company or be a CEO. I didn’t know anything about it. And I learned on the job. I didn’t go to business school, I went to law school.
So my first job, I created it this business. The first job I had was as a lawyer and I went out and applied for jobs and got a job. But I wanted in the end to be an entrepreneur. I wanted to own my own business. I wanted to be a pioneer in an industry where I thought I could make a difference and make a change in the way that businesses operated in that industry. So I ultimately found my way into licensing.
Nathan: Yeah, I see. So you’re a lawyer by trade. So was Beanstalk your first company?
Michael: Beanstalk was, yeah, pretty much the first company that I founded. I did it with a partner at the time to be devoted to, at the time corporate brand licensing. Licensing the intellectual property of major corporations onto other products for which they would receive royalties and things like that. It was an area of licensing that was not particularly well-formed at the time. So we saw an entryway there. We saw a door there that not too many people that could walk through.
There was a lot of entertainment licensing at the time. I’m talking about the mid 1980s or early 1990s. There was a lot of entertainment licensing, motion picture licensing, television licensing, character licensing, all of that. There wasn’t a lot of licensing of famous corporate brands like the Coca-Cola company and Harley Davidson. That’s when we saw a wide space.
Nathan: Interesting. So how did you come up with the idea if it was fairly foreign at the time? This concept of licensing big brands.
Michael: Well, it wasn’t completely new. I mean, some companies had been doing it. So it was out there, but it wasn’t being done … there weren’t any agencies devoted to doing that. Coca-Cola, I use them as an example all the time. They had been licensing their brand since the mid, late-1970s, and they really did it well. We ended up working with them, and I learned a lot from Coca-Cola over the years.
Licensing is about following the fame. So anything that has fame is a potential licensing property. And these corporations like Coca Cola and Harley Davidson, and all of the brands at Procter & Gamble and so many others have an enormous amount of fame and a large consumer base. So our thought was create an agency that can actually serve the interests of so many of these famous corporations, and develop licensing programmes for them. It was a new concept of time to have an agency devoted to this.
Nathan: Yeah. Interesting. So can you give me just, and also for the audience, just kind of a bit of a fast forward? So you started the company, it sounds like 25 years ago. 30 years?
Michael: Yeah. About, about. I probably would have been an internet startup company if the internet was around back then. This was before Apple, and Google, and Facebook, and personal computers. So we went in another direction.
Nathan: Wow, that’s crazy. And can you give us kind of an idea for the audience, how much traction and where you guys are at now? Just fast forward. If you got a hard work, great idea, great product, great service, and obviously an insane focus. What does that look like now?
Michael: Well, we are probably one of the largest licensing agencies in the world right now. Beanstalk is the name of the company. We’re majority owned by Omnicom, the marketing communications holding company, $16 billion holding company. And we operate across all sorts of disciplines. We still specialize in corporate brand licensing. Procter & Gamble is our largest client. But we also do consulting work. We also represent entertainment brands. We represent video game brands. We represent celebrities. We’re in offices in London, New York, Miami, Cincinnati, and Asia. So it’s become a big and very, very well known company. In 2018, we were responsible for over $7 billion in retail sales of licensed product.
Michael: So it’s grown. It’s grown. It’s gone a long way from sitting around a kitchen table and trying to build the business. I think you mentioned that your audiences are generally entrepreneurs. And entrepreneurism is great. It’s not for everybody. I know a lot of people who came up the ranks with me and went to business school, and got jobs at big corporations, and rose to the very top of the ladder, and made a fortune. So there’s nothing wrong with being a good corporate citizen and working for a company, and paying your dues. But being an entrepreneur was what I was interested in. And I don’t know if anybody that you speak to ever talks about the definition of an entrepreneur, but someone once told me what the definition was to them. And I’ve never forgotten it because it is what I believe that. An entrepreneur engages in the relentless pursuit of opportunity without regard to resources currently controlled. And if you break that down, it is exactly what being an entrepreneur is about. You have to see an opportunity, you have to pursue it relentlessly, and you have to be completely oblivious of the lack of resources that you have to win. And that’s what it’s all about. It’s a 24/7 project. Being an entrepreneur. It’s been a great ride for me.
Nathan: Yeah. So it sounds like that you guys sold the company at some point in time.
Michael: Yeah. We sold the business. The business was sold to Omnicom in 2005. The majority, they’re a majority owner. I still own a minority of the business. So we’ve been part of Omnicom for almost 15 years, I guess.
Nathan: Okay. Wow. So one thing that strikes me is your level of focus. Usually, a lot of founders and entrepreneurs, especially when they’ve been doing things for as long as you have on one company. They get bored or they have this what’s called shiny object syndrome, and they want to move onto the next thing, and the next thing. Like what you described, that relentless pursuit and the chasing of opportunity. Well not so much chasing, but yeah. Always new opportunities, right? Once you have it in you, everywhere you look there is a problem to be solved. How have you maintained that, that level of focus?
Michael: Well my wife likes to tell me all the time. She says, “You’ve been doing the same thing for 25 years, don’t you want to do something different?” And there is something to be said about that. I can see how she thinks I’ve been doing the same thing for 25 years. But I don’t feel like I’ve been doing the same thing for 25 years. The way I’ve maintained my level of interest is to continue to evolve, and look at the business, and see new things. Continuing to ask questions of myself as the business grows. So I ask questions like, “How is our industry viewed? What are the negatives? What are the stereotypes? How have they changed? How is it viewed now as compared to the past? How is our industry viewed by smart clients? How have their expectations changed? How are the tactics changed?” We operate in the marketing and retail environment. Licensing is a marketing tool, but it’s also ultimately engaged in selling product. And the marketing and retail environment right now is changing at such an accelerated pace. There’s so much to learn. There’s so many new things to get involved in, in marketing and in retail. And we touch all of those fields.
So there’s always things to learn. There’s always time for discovery. And there’s always for me, it’s always been a time to move from one model of licensing to the next, and one model of running a business to the next. Look, I didn’t know anything about building a culture in a company or how to retain and satisfy talent until we became part of Omnicom. And I learned all of that through their management training programmes. That was a big, big jolt of, a big movement for me in my career when we became part of Omnicom. I started learning so much. And then two or three years ago I decided that I was getting a little tired being the CEO. So I turned the CEO reins over to a long-time colleague of mine, 20 year colleague of mine here at the agency. And I moved into a new role that allowed me to grow even further.
I spent the next two years after I turned over the CEO reins writing a book on licensing called The Power of Licensing: Harnessing Brand Equity, which has pretty much become in a very short period of time. It was published last year, the bible for anybody interested in brand licensing. That was such a journey of discovery for me writing the book, I’ve learned so much. I remember talking to the publisher before I started writing and I asked them how long should the book be? And he said, “Well, a good business book is 220 pages.” And I said great, no problem. But in my head, I thought do I really have 220 pages worth of stuff to say? And once into it, I wrote a 350-page book and could have kept going.
So the way I’ve stayed focused, and interested, and productive is to continue to learn and discover new things, and to teach. I’m at the point of my career where I can do a lot of teaching, both formal teaching and informal teaching. So your career can evolve. You can continue to do sort of the same thing as my wife thinks I’ve been doing. But as I try to explain to her, you can evolve your career. And that’s what I’ve done as this business has evolved.
Nathan: Yeah. That’s really interesting. And it’s quite rare, and it’s something to be admired, I believe.
Michael: Well, I hope so because I can’t change course now.
Nathan: You could if you wanted. You could start something else, right?
Michael: I guess so. I don’t know if I have the energy for it.
Nathan: Yeah. Yeah. It’s a whole different journey.
Michael: I mean look, you run a business like this, you start a business like this. And as I said before, be prepared for a roller coaster. I mean there are ups and downs, and it’s a 24/7 project. You’re thinking about this business all the time, all the time. On weekends, when you’re at parties, when you’re supposed to be listening to other people talk about their vacations. You’re thinking about the business. So it’s a roller coaster.
Nathan: Yeah no, I agree. So talk to me. Let’s just start things off because you’re obviously a master and you’ve been in this space for a long time around licensing. How do you know when your brand qualifies to be licensed? You talk about fame, but fame is hard to measure, right?
Michael: Yeah, that’s a really interesting question. And it’s a good question because, and it’s one that we struggle with all the time. You got to have fame, there’s got to be fame. And the brand has to have enough fame among a large enough group of consumers to make it worthwhile for licensing. So first, you have to have fame among the large enough of consumers, that’s number one.
Number two, the brand has to have opportunities in aligned product categories that will generate enough volume of business. So for example, Citibank is a very famous brand in the United States. But it’s not a brand for licensing because although most consumers know Citibank and have heard of Citibank and know what it is, there aren’t product categories that that brand can be extended into that really will generate enough volume to make sense for Citibank to engage in licensing.
So when you’re looking at corporate brand names, you’re looking at the fame to a large consumer group. And you’re looking at the product categories that they can enter into.
It’s the same analysis for entertainment brands or for celebrity brands, and we’ve worked on all of that. I just noticed yesterday that Lady Gaga has announced that she’s doing a cosmetics line exclusively at Amazon. It makes enormous sense to me. I mean, she hits all of the metrics for a successful cosmetics launch on Amazon. She’s famous, everybody knows her. She’s well known for her use of cosmetics and facial makeup. She has a lot of credibility with consumers. She has staying power, she’s putting a lot of time commitment into it. She’s hired a lot of people to work on this. And for Amazon, it allows them to remain relevant with a large consumer base and attract many of her fans to their website. So that’s an example of a celebrity brand. And I’m not sure if she’s quite a brand yet, but that’s the example of a celebrity brand launching and licensing.
So it’s fame, it’s fame among a large group of consumers. The right product category that makes sense for a brand. And the volume opportunities. You got to be able to sell a lot of product for it to make sense.
Nathan: So talk me through the process. You said one of your biggest clients is Proctor & Gamble. They have many different brands. How does that work? What would Proctor & Gamble, what particular brands would they want to license and work with you guys to put on, and what retail products?
Michael: Okay. So take a brand like Febreze. Okay? Febreze is a air refresher, right? Do you have a Febreze in Australia, I’m not sure.
Nathan: Yeah, not sure.
Michael: Yeah, Febreze is an air refresher. It’s one of the category leaders in the United States at least. So the equity of Febreze, it’s a multi-billion dollar brand. The equity of a breeze is that it doesn’t just mask odour, but it eliminates other. So people use Febreze, spray Febreze in their homes, and they hang Febreze in their cars. So wherever you might have unpleasant odours, Febreze will eliminate those odours. So where can Febreze go? Where can they go in licensing? Well, they can go wherever you can find smelly products. So what we’ve done with Febreze is align them with trash bags. So you can buy trash bags with Febreze. We’ve aligned them with kitty litter so you can buy kitty litter with Febreze. So we’ve aligned Febreze with products that need their odour to be eliminated. So that’s a way for Proctor & Gamble to extend the brand of Febreze.
And as I said, it makes money for Proctor & Gamble, but the money is really a rounding error to them. Really what they’re doing is they’re reaching out to consumers in different ways. They’re communicating the marketing message of Febreze that it eliminates odour through different products. So consumers are becoming more engaged with the brand by seeing products in different aisles of the store or in different stores entirely. So it’s a way to reach consumers and touch them with a brand, and extend the brand meaning, and further bond consumers with the brand.
And in today’s marketing environment where companies are struggling so much to figure out how do we connect with consumers? Traditional advertising is in decline. So how do brands connect with consumers today? And it’s different for different generations. And licencing is actually in my opinion, an analogue tool in a digital age. Licencing is a way to invite a consumer to participate with the brand by buying a product and bring it into their home. And it’s a way to reach consumers in different ways, in different aisles of a store, or in different stores, or in different web pages. And communicate the brand message to consumers. So it’s a way of entangling a brand with consumers, which is what all brand owners want to do.
Nathan: Yeah. And I’m curious. Why would for example, Febreze license their brand to another company that are looking essentially to produce their product for them? It may have white label for example trash bags, and they just license the brand. Why not just do it themselves? Why not just produce the product themselves?
Michael: Well, usually companies like Procter & Gamble in the trash bag space or the kitty litter space. They don’t have the expertise to go into those product categories. There are major companies in those product categories already. Those companies know how to make those products, know how to sell those products, know how to market those products, and know the retailers where those products are sold.
So a company like P&G isn’t necessarily going to start up a new business in the trash bag category or … category. Which is a business that they don’t know. It’s a business that they don’t know. It’s outside their expertise. So instead of doing it themselves and trying to compete with leaders in the category, other leaders in the category. They’re much better off licensing their name to those leaders in the category and letting them manufacture market and sell the products.
Michael: Baileys cream liqueur. So I’m sure you have Baileys in Australia.
Michael: So it’s owned by Diageo, and they want to communicate a message that Baileys is not just a drink that you engage with at holiday time. They want Baileys, they want the brand to be seen as just an indulgent treat. Use 365 days a year, and at different parts of the day.
So how can they do that? People aren’t going to drink cream liqueur for breakfast. But they will drink coffee creamers with the Baileys taste profile. So there’s Baileys coffee creamers. There’s Baileys chocolate cake, there’s Baileys chocolates. There’s Baileys, there’s a full range of Baileys products, food products that can be used 365 days a year in different parts of the day. So Baileys is able to communicate to consumers that we’re more than just a liquor. We’re an indulgent treat that can be used throughout the year at different times of the day. And Baileys doesn’t want to go into those product categories themselves. Those aren’t businesses that they want to start developing themselves. So they use licensees to deliver that message for them and sell the products.
Nathan: Yeah, I see. So licensing, it’s an interesting concept. Something that we’ve never spoke about on the podcast. And I’m curious to hear if people are just getting started or maybe their brand’s been going for a couple of years. What can they learn from you, Michael, because their brand might not be at a level of fame that it could be licensed?
Michael: Yeah look, we get phone calls. We probably get 25 phone calls a week from people who say, “I’ve developed this brand and I think it should be licensed,” or, “I’ve developed these characters and I think they’d be great for greeting cards.” And we get calls like that all the time, and we always turn them down because it’s just, there’s just so much room on retail shelves for product. It’s not like retail shelves. When I say retail shelves, I’m referring to webpages also. It’s not like they’re empty waiting for somebody to come along. The retail shelves are full. So for one product to get on the shelf, another product has to come off the shell.
So people who believe they have brands that are licensable, they have to make sure that a large enough, a large group of consumers know the brand. Because when I say a large group, I’m talking about the majority of the country or certainly segments of consumers. Whether it’s a large percentage of Gen Z, or millennials. So you need to be, licensing is not going to make you famous. You need to be famous first, and then start licensing your brand. A lot of people think that licensing is what’s going to make their brand famous. That’s not the way it works.
Because don’t forget. To be successful at licensing, we have to be able to go to another company and say to them, “Invest your money in this brand. Make a product with this brand on it, and go out and sell it at retail and pay us a royalty.” It has to be worthwhile for them. They have to feel like that brand is going to give them a real leg up in sales and marketing in order to be successful. If you’re not offering a manufacturer the opportunity to do well with the product because your brand is well known, then why would they invest the money in doing it? It’s that level of fame that you need in order to be successful, to even have a chance at licensing.
Nathan: Yeah, I see. What if though, let’s just say you had a complimentary product or a complimentary potential partner. Would it be worth licensing the brand or just do it yourself? Let’s just say for example, so my girlfriend, she has a company and she sells water bottles. And it’s doing quite well. It’s a time marked water bottle. It’s great design. The company’s called Healthish. So health I-S-H, Healthish.
And let’s just say she wanted, because the brand is strategically quite broad. So she wants to produce other health based products. Let’s just say she doesn’t want to get into the business of a lot of people would like to use the bottle to drink water and that’s the purpose of it. But she doesn’t want to get into doing those little drops that you put in your water and it turns into vitamin C water and it turns orange. Let’s just say she doesn’t want to get into that. Is there merit to go out and license her brand to a company that produces that, or is it more from a retail perspective?
Michael: No, there’s merit in going … if she doesn’t want to produce those products herself, but she thinks they’re complimentary to her product and can be sold separately from her product. And her brand Healthish is famous enough and people know it. Then there’s opportunity for her to licence that brand name to dropper company to make those droppers and sell them in packaging that is consistent with the Healthish brand. And they can be sold separately from the water bottles, or they could do a promotion where there’s all together with water bottles or displayed together with water bottles. So there’s lots of opportunities to do that. It all depends on whether or not Healthish is famous enough as a brand so that someone would be willing to pay your girlfriend to use that brand name. Because they feel they’ll get a leg up in the category by using that brand name.
Nathan: And it’s really a branding and distribution play and a volume play.
Nathan: So talk to me around the numbers. If you want to license your brand right now, what ballpark royalty would you be looking at?
Michael: Well, it depends a little bit on the category. High margin categories have higher royalties. And high royalties are in the 10 to 14% range. That’s a wholesale of wholesale sales. Those are high margin categories, like tee-shirts are a high margin category.
Low margin categories like food. So if you’re going to licence your brand into ready to eat cereal, also known as cold cereal. If you were going to licence your brand into ready to eat cereal, the margins there are very low. So your royalty is going to be in the one, two or 3% range. But the volume is very high because people have to keep buying more of it, right? You buy a box of cereal, you use it, you’ve got to go buy more. So the royalty rates are low, but the volume is high. So as I said, it depends on the category. But in general, I would say royalty rates are between five and 10% of wholesale sales.
Nathan: Yeah, I see. It’s very, very low risk because the company that’s licensing your brand is basically taking on all the risk.
Michael: The company that’s licensing the brand is taking on all of the sales, and marketing, and distribution risk. The product fails, it’s going to be their risk. The risk that the brand owner has is to a certain extent, you’ve lost a little bit of control over your brand. No matter how hard you try to maintain control. And the brand owner has the right of approvals, over everything. The end of the day, somebody else, a third party is going out and marketing and selling that brand to retailers. And you, the brand owner have lost a little bit of control. So stuff can happen.
Maybe, I noticed just today a Disney Toy Story product was recalled because the eyes, the product has googly eyes. Small children could potentially swallow them. So they’ve recalled hundreds of thousands of these dolls. So there’s a risk. There’s a risk, a reputational risk. There’s a risk that the product will fail and somehow damage the reputation of the brand. If it’s a celebrity licensing programme, there’s all sorts of risks. In terms of the celebrity’s reputation and how they act in public. So there’s those kinds of risks.
Nathan: Contractual risks, reputational risks, things like that that the brand owner has. But the financial risk is all on the licensee. Yeah, I see. So one thing I’m curious around Michael is what makes a brand famous? Let’s talk about that. Everyone aspires to build a Coca-Cola, a Harley Davidson. A brand that is famous. You’ve been in this business for a long time. You’ve seen people come to you guys every day. You’ve seen it. What do you think? Like how anybody that’s listening right now, if they want to build an incredible brand with tremendous amounts of brand equity in their industry, on the niche, on the market they serve. What makes a brand? How do you stand out? Obviously, there is a long tile when there is a long game. But what can people be thinking about? What can they be doing right now to sure that over time, their brand equity is compounding that it eventually becomes famous enough that they’d want to work with you guys?
Michael: Well, that’s a really good question. Let me walk it back one step and say what is a brand to begin with? So how do you define a brand? So the way I define a brand is this way. If you took 10 people from your target audience and you ask them what does this name mean to you? They should all pretty much say the same thing. So if I go out on the street and I ask 10 people, “I want you to give me the words that describe this brand.” And if I ask them to do that for Coca-Cola, almost all of them are going to say, “It’s a drink. It’s Brown, it’s fizzy, it’s in a red and white can,” or, ‘It’s in a bottle.” They’re all going to say pretty much the same thing. And to me, that’s what a brand is. When enough people think the same thing. Think the same words. When you say the name of the brand to them.
So for people who are trying to establish a brand, they have to define for themselves what are the equities of the brand? What do they want those words to be? No one knows who you are yet. Put the name of your brand on a piece of paper. And what are the six words that describe that brand? And don’t tell me things like trust and quality. Because every brand theoretically has trust and quality. That’s what a brand is about. And that’s why people need brands because they have trouble making buying decisions, and brands help them make a buying decision because they can trust the brand. And they know the brand has a certain level of quality.
But if I was starting out and wanted to develop a brand, first thing I’d do. Put the name on a piece of paper. And pick the five, or six, or seven words that I want to describe my brand. And then everything I do, everything I do with that product, everything I do with the marketing, everything I do with the packaging should hit those nails on the head every single time. And that’s how you’ll start building a brand. Then of course you go to have sales, right? You have to have lots of sales. But know who you are and stay true to who you want to be as a brand.
Nathan: Yeah. And I’m curious around a company like Supreme. I’m sure you’re familiar with them, right?
Nathan: So they put Supreme on anything. They could put Supreme, and I think they have, don’t quote me. But I think they put Supreme even on a brick and sold it for 1,000 bucks a brick.
Nathan: They can put their brand on anything, and it is so cool. How did they develop that, and are they doing these things themselves or they must be licensing deals? They team up with phone cases, all sorts of crazy products. But people love it. Why, what is special about that? I’m curious to hear your take.
Michael: Well Supreme somehow establish themselves as being very, very cool. Now how long you can maintain that is another question. Because the more mainstream you become and the more you throw your brand out there on a million different things, the coolness factor starts to deteriorate. But right now they’re riding the wave of being very, very cool.
They’re not doing those product extensions through licensing. They’re doing them either on their own or through some other type of partnership. But they’re not doing it through licensing. So they have a lot of control over what’s happening. And right now as I said, they’re riding that wave of coolness. But it is something that can ultimately get over done, and someone else comes along that now the cool brand. So we’ll see. There were cool brands of the past that are not so cool anymore. Like FUBU. FUBU was a really, really cool brand for a while. And then it sort of lost its coolness. Now they’re trying to bring it back. But these cool brands come and go. I don’t know. It’s more of a fad than a long-term trend I think.
Nathan: Interesting. So talk to me around kind of, I guess I’m going to get a bit selfish here. When I think of the Foundr brand, I’m not sure how much you know about us Michael. But we produce not only just audio podcasts, we produce content on anything you can imagine around entrepreneurship. Whether it’s written, whether it’s audio, whether it’s magazines, whether it’s digital magazines, whether it’s magazines, whether it’s physical books, eBooks, online courses, you name it. We try and stay fairly focused around product. But we get a lot of people that contact us basically every week saying, “Hey, I want to take the Foundr brand and create Foundr Spain, Foundr China, Foundr Africa, Foundr Nigeria.” And I always push it back. And I think it’s an incredible opportunity for us to rapidly grow our brands. Should this be considered a form of licensing, or more of a partnership? Some of the people that come out of the woodworks, it’s crazy. They say like, “Hey, I’m from China. We run a very, very large, reputable company. We’re massive. We’d love to take the Foundr brand and bring it to China, transfer your content into Chinese and really go and interview all the top entrepreneurs in China. And we can really develop the brand from here.”
I always thought it would be really cool to have the Foundr brand around some physical products like a journal or stationary. If you’re an entrepreneur, these things that you need, right? And yeah. So talk to me. What are your thoughts there? What should I be thinking about? Is it too early? We’ve been going for about five, six years. I don’t think we’ve reached that level of fame yet. But still a lot of people come to us. Yeah, I’d love to hear your thoughts.
Michael: Look, you have a model that’s working, right? You have a content model that’s working. And that’s, I assume successful, right? You’ve done what, over 250 podcasts.
So you could extend your brand into other countries, and it could be done in a variety of different models. So you could do joint ventures, you could just do some sort of partnership. You could also do it the relicensing. You would be licensing the brand name, but the challenge will be A, for you to do the due diligence on the companies that you want to partner with, right? We all get calls by companies in China. It’s like how do we think about if this is a good company or not? It happens to us all the time too. But you can do with their licensing. But you’d have to maintain a lot of control over how they’re collecting, and disseminating, and creating the content that they’re doing under your brand name. That will be the issue. Maintaining control of what they’re doing and the quality of what they’re doing. But it could certainly be done via a licensing model.
There’s other models also. Licensing isn’t the only model, but it could be done through a licensing model and they would pay you some percentage of their revenue. I assume that you have a variety of revenue streams. And each revenue stream might create a different royalty rate or there may be one overall royalty across all of the revenue streams. Or there may be an annual fee that they pay. So the financial model would require some research and evaluation, but certainly could be done through licensing. But you have to have something that you’re offering them, and you’re offering them more than just the Foundr name. You’re offering them the methodology of doing this. You are going to teach them how to do this. How to replicate what you’ve done in their country. So you’re licensing much more than just your name. You’re licensing the secret sauce of how you do what you do.
Nathan: So you’re saying you’d be leaning more towards a joint venture? Sounds like it.
Michael: Yeah. You’re probably better off with a joint venture as long as you don’t have to put up any money. I’m an entrepreneur. I’m always looking to put up my sweat equity instead of my money.
Nathan: Yeah. Okay. Interesting. So talk to me around the celebrities that you’ve worked with. Because there’s this rise of influencer marketing, right? Everyone wants to be an influence now, or a big proportion of people that have a company are trying to build their personal brand. And there’s a lot of content creators.
Essentially in this day and age because of the power of the internet, you could become a celebrity off the back of the internet. You don’t have to be a famous musician. You don’t have to be a musician and you don’t have to be an actor to become famous now. You look at even entrepreneurs. They in the last 10 to 15 years have been glamorized. They have made entrepreneurship cool. So this is all through the power of the internet and this is something that you would be seeing now. I’m curious around the celebrities that you’ve worked with, there’s a lot of ways that celebrities can monetize their brand. If you look at the Kardashians for example, there are companies out there like Teespring. You talked about tee-shirts. Like for example, one of the most famous people on YouTube. He uses a service like Teespring to just put his merchant on and essentially in a way license his brand to get out people to go out and promote him. But yeah, I’m curious to hear your take on that. Because you can use services like Teespring to just print on demand whatever you want.
Michael: Yeah. I don’t know Teespring, but I’ll divide the answer into two parts. There’s traditional celebrities. Those are the celebrities that are musicians, or motion picture stars, or television stars. Those are traditional celebrities, and they’ve been engaged in licensing for, there’s been licensing among traditional celebrities for a very long time, really a very long time. I like to say that the first celebrity to license his name was Theodore Roosevelt, who was president of the United States in the early 1900s. This is a great story. Do you know Theodore Roosevelt? Do you know Teddy Roosevelt?
Nathan: Yeah. Of course, of course.
Michael: Early 1900s. So anyway, he was a great outdoorsman and Hunter. And he was taken on a hunting trip by the governor of Missouri in Missouri, I think. And they just couldn’t find a bear. I mean, they couldn’t find a bear for Teddy Roosevelt to shoot and kill. So they went out and found some old sick bear, and dragged the bear to a tree, tied the bear to a tree, and said to President Roosevelt, “Well, here’s your bear.” And Roosevelt said, “I’m not shooting a sick bear tied to a tree.” Some cartoonist, I think it was the New York Herald. Picked up the story and did a cartoon of Teddy Roosevelt aiming a gun at the sick bear tied to a tree and then refusing to shoot the bear. And it became very, very famous. And a toy company in New York got in touch with the president and asked for permission to use his name on a bear. And he gave his permission, and that became Teddy’s bear. Which ultimately morphed into the Teddy bear.
Now, I don’t know if Theodore Roosevelt got paid for this or not, but he did give permission to the company to use his name on a doll. And I think that’s the first instance of celebrity licensing that I know of.
So, celebrity licensing has been around for a long time. Traditional celebrity licensing. But now, we have other types of celebrities. We have digital celebrities. You talked about influencers. We have digital celebrities, and they’re starting to engage in licensing too. They can’t be celebrities for 15 minutes. They have to have some staying power because it takes time to get product to market. So the digital celebrity space is just getting started. But we do have digital celebrities that are doing licensing.
There’s actually a kid named Ryan who is believe it or not, eight years old. And he is an influencer. He talks about toys online. And he has a very, very large following. What is now known as the alpha generation, under 10 years old. And he’s coming out, they’re coming out with a line of toys, Ryan’s toys. So we’re seeing influencers start doing licensing. I think Bethany Mota did a big line of health and beauty products. So it’s starting to happen now with influencers, certainly the ones that have staying power, to be engaging in licensing.
Same thing’s happening in the esports. I mean, here’s a whole new sport that has sort of exploded on the scene in the past several years. And now there are very famous esports players who are making millions of dollars a year in prize money and in endorsements, and in sponsorships. And it hasn’t really started yet, but we’re going to start seeing esports players, the stars engaging in licensing, just like the stars of the more traditional sports. So the world of the internet is creating a whole new cadre of celebrities that are and will be engaged in licensing.
Nathan: Yeah, I agree. It’s crazy. Well look, we have to work towards wrapping up Michael. The last question I wanted to ask is just where’s the best place people can find out more about yourself and your work? And yeah, thank you so much for your time.
Michael: Yeah, well the best place to find out about me and our work is certainly our website, www.beanstalk.com. I’m very active on LinkedIn, and of course I mentioned before, I wrote a book The Power of Licensing: Harnessing Brand Equity. Which is available on Amazon. I write a lot for Forbes. So I’m always online writing articles for Forbes. Those are probably the best places to find that out about me, about licensing, about Beanstalk.
Nathan: Amazing. Well look, thank you so much for your time, mate. It was a very, very interesting conversation and congratulations on all your success thus far.
Michael: Thank you.
Key Resources From Our Interview With Michael Stone
- Visit the Beanstalk website
- Connect with Stone on LinkedIn
- Get a copy of Stone’s book on Amazon
- Check out Stone’s writing on Forbes